16 Aug 2013

Two Sumner Posts That I Thoroughly Enjoyed

Economics, Federal Reserve, Scott Sumner 14 Comments

In this post, Scott hits something that I have been pointing out myself:

So let’s review the past year:

1. Keynesians warned us that it would be a huge mistake to adopt fiscal austerity in America. It would cut growth sharply. Mark Sadowski has the details.

2. The “Laffer wing” of the Keynesian movement predicts the damage to growth will be so great that the deficit might not even decline.

3. Then we find Congress does the austerity, despite the advice of the Keynesians.

4. Job growth continues in 2013 at almost exactly the same pace as in 2012. The tax revenues pour in.

5. The budget deficit gets much smaller.

And how do the Keynesians react to all this? They say “I told you so.” There was never any reason to worry about the big bad deficit. It’s coming down very fast “on its own.” Yes, if by “on its own” you mean that the evil GOP forced eurozone-style austerity on the US, and the Fed offset the effects on NGDP (unlike the ECB.)

And in this single post–which is full of irony–Scott has ensured that he will never, ever, be confirmed as Fed chairman. Phew!

14 Responses to “Two Sumner Posts That I Thoroughly Enjoyed”

  1. Bob Roddis says:

    Re: Bermuda… Sumner is sorta catching onto the fact that ethnic differences are minimized when there is a minimum of “public goods” in a multi-ethnic democracy. As the amount of “public goods” increases, the government then owns the economic factors of society, everyone always votes ethnic and the largest ethnic group controls those economic factors by winning the election. Leading to ethnic strife, ethnic cleansing and genocide. As always, it’s all the “progressives'” fault. See present day Iraq (as I predicted in 2002).

    http://www.stanford.edu/~rabushka/politics%20in%20plural%20societies.pdf

  2. Bob Roddis says:

    If you don’t want the free pdf version of the Shepsle-Rabushka book. you can buy the 2008 re-issue on Amazon.com:

    http://tinyurl.com/pfokhel

  3. Matt M. (Dude Where's My Freedom) says:

    Wait, exactly what austerity did the GOP force on us? Is he referring to the sequestration, which is a minuscule cut to the rate of spending growth?

    • Innocent says:

      Ummm… I think it has been a number of things. The base line budget increases have been stonewalled by Republicans for the past three years now.Most Budget proposals floated call for a reduction and restructuring of spending methodologies. Sequestration, which admittedly is a 2.22% decrease in spending levels is actually akin to the amounts really being done in Europe, Add to this that our State Sectors have been cutting back even more than this and that is where the ‘real’ Austerity has been done.

      To be honest we have not engaged in real austerity, or we would see a temporary drop in economic activity. Rather it has been a gradual drop as states have placed their budgets back in line with the new revenue streams that they have been getting.

      I would also argue that a majority of the revenue coming in is temporary, this being due to the Fed stimulus inflating the equities and bond markets ( yes I mean inflation rather than returning to nominal values ) and when the next bubble pops ( in 3 – 5 years ) it will again cause huge issues.

      Anyway, yes the Keynesians have been saying that the ‘minuscule cut’ as you put it is austerity.

      • guest says:

        Ron Paul: No Real Cuts In Sequester ~ CNBC 3/1/2013
        http://www.youtube.com/watch?v=JOjK94kwn0U

      • guest says:

        They are merely cuts in proposed increases. Not real cuts.

        They have played this game over and over again.

        • guest says:

          Challenge to America: A Current Assessment of Our Republic
          http://mises.org/daily/2894

          Congressional Record — US House of Representatives February 7, 2001

          When the budget and government controls are expanding each year, a token cut in the proposed increase means nothing, and those who claim it to be a legitimate victory do great harm to the cause of liberty by condoning the process. Instead of it being a Third Way alternative to the two sides arguing over minor details on how to use government force, the three options instead are philosophically the same. A true alternative must be offered if the growth of the state is to be contained. Third Way bipartisanship is not the answer.

    • Bob Murphy says:

      Matt M. sure, but the point is that a lot of the CBO’s projected improvements in the near- and moderate-term deficit picture are coming from cuts in spending relative to the pre-sequester trajectory. So since Krugman and others have been warning that “cutting” spending in this fashion is crazy, and that Europe showed what a disaster it is, it’s jaw-dropping that he now comes back, points at the improved deficit projections, and says, “See? No deficit problem. I told you guys we didn’t need to cut spending.”

      • Matt Tanous says:

        Hey, guys, we cut spending and this meant we racked up a bit less debt this year, which means we didn’t need to cut spending after all!

  4. Morgan Warstler says:

    Bob, if you’ll give it I’d like your take on the way Roger Farmer at UCLA tweaks old Keynesian into something that focuses on increasing animal spirits int eh public market:

    http://www.voxeu.org/article/does-fiscal-policy-matter-there-better-way-reduce-unemployment

    1 The standard New-Keynesian and real business cycle models (Woodford 2003, Kydland and Prescott 1982) both contain a unique steady-state employment rate that is pinned down by fundamentals. Neither model contains unemployment and therefore cannot explain why unemployment has doubled in the current crisis. Gertler and Trigari (2009) and Hall (2011), have introduced unemployment into an otherwise standard macro model but they cling to the assumption that there is a unique natural rate of unemployment, explained solely by fundamentals. Models that maintain this assumption cannot credibly explain financial crises.

    2 Farmer’s (2009, 2010a, 2010b, 2010c, 2011) model interprets Keynes’ General Theory (1936) in an original way. It reintroduces the idea, absent from new-Keynesian economics, that there is a continuum of steady-state unemployment rates. Farmer’s framework provides an independent role for business and consumer confidence. Confidence is treated as a fundamental that selects an equilibrium.

    • Bob Murphy says:

      Sorry Morgan, I’m pretty swamped. I only have time for Daniel Kuehn and Matt Yglesias posts.

      • Joseph Fetz says:

        Daniel will either be thrilled or crushed by that comment, I can’t be too sure which.

  5. joe says:

    He needs to take a closer look at the labor dept numbers. Part time for economic reasons was declining sharply in late 2012 and has increased every month in 2013 except march.

    Part time for economic reasons:
    2012,0.6,-1.1,-5.7,3.0,2.8,1.2,0.4,-2.4,7.0,-3.7,-1.8,-2.7,
    2013,0.7,0.2,-4.4,3.6,-0.2,4.1,0.2

  6. Tel says:

    Sometimes when things seem too good to be true, it’s because they aren’t true. I find it surprising that the deficit has dropped quite so much at just the time they are poised to hit that nasty old debt ceiling yet again.

    In politics, nothing happens by accident. If it happens, you can bet it was planned that way.

    Franklin D. Roosevelt

    From the guy who planned the biggest gold heist in history, you listen to him, he’s been there and done it.

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